The outlook for China against US or European recession
- 07 September 2022 (5 min read)
Key Points:
- Growing stress in the global economy is stoking fears that a sharp slowdown in external demand could be the last straw for the Chinese economy
- Using OECD ’s data, we estimate the potential shock to China in various slowdown scenarios. In the case of a soft landing – whereby developed economies slow but avoid a recession – China’s export growth would fall to single-digits, reducing its GDP contribution by half compared to 2021. But in two adverse scenarios – varied by the severity of recession – falling export growth could subtract up to 0.7% from China’s GDP
- We also consider the possible impact of a broader economic slowdown spreading to the rest of the world. Against which, we think, Beijing would likely take aggressive action to cushion the growth shock. However, the policy offsets are unlikely to be complete. Hence, some revision to our growth forecast would be warranted depending on the timing and severity of the shock
- Finally, we examine how financial markets in China may react to a slowing US economy. The recent dollar strength may continue on safe-haven flows. Chinese equities will unlikely be immune from further US market weakness but the downside could be limited by relative valuations. In the bond market, the current level of US interest rates points to upside risks to Chinese bond yields
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